CAIRO, (Reuters) - Egypt on Monday, May 28, changed the central rate of its "managed peg" exchange rate system to 3.86 pounds to the dollar from 3.85.

The announcement was made by the Central Bank, but no one was immediately available there to explain it. However with black market rates well above four pounds per dollar, analysts dismissed the move as too little, too late.

It was the first time the rate has changed since the forex system, which allows the pound to trade in a one percent band either side of the central rate, was introduced in January.

In May last year, the government abandoned a nine-year currency peg at 3.40 to the dollar, provoking a fall in the local currency which steepened immediately before the managed peg system was introduced.

"At least they are showing some flexibility, but it is the sort of flexibility they should have shown two years ago," Angus Blair, Managing Director of equity fund Safron, told Reuters.

"The market would expect the Central Bank to continue to show flexibility," he said, adding that a more realistic pound-dollar exchange rate would be in the 3.90 to 4.00 range.

Banks and forex bureaux have so far reported limited foreign exchange liquidity under the new system. Black market exchange rates have risen to between 4.02 and 4.06 pounds to the dollar, from rates of around 3.95 in early March, market sources say.

"It is a change of one piastre (0.01 pound). It is meaningless," said an analyst at a Cairo-based investment bank, who asked not to be named. "This is the difference between traveling at 99 km per hour or 100 km per hour."

"The dollar peg is a complete fiasco, a complete failure. As long as we do not have an open market, we'll have the situation of people increasingly going to the black market," he added.

Anais Faraj, economist at Nomura in London, said the fact that the Central Bank had at last changed the central rate was positive, although it was too small and too late an adjustment.

"Hopefully, the Central Bank will now make adjustments more regularly," he said, adding that uncertainty remains about where the pound will eventually find equilibrium.

Faraj said that, on fundamentals, the pound-dollar rate was not far from fair value. "I'm still a believer that 3.90/3.95 is not an unreasonable level for the pound," he argued.

But he said the foreign exchange market could be very subjective. "There is just a lot of negativity regarding Egyptian assets at the moment," he said.

Economist Nashwa Saleh of Cairo's HC Brokerage said she had been expecting the central rate to be re-set because parallel market pound-dollar exchange rates had reached 4.03 to 4.05 and banks had been trading at the upper limit of the old band.

Foreign exchange uncertainty is weighing on the equity market, she said. "There is no fundamental reason for the stock market, otherwise, not to have picked up by now," she said.

Egypt's benchmark Hermes Financial Index of stocks hit a seven-year low of 5,747.57 on April 1. It has since recovered to 6,786.08, but that is still less than half its life high of 16,448.52 reached in February 1997.

Nomura's Faraj said foreign institutional investors were questioning the logic of investing in Egyptian equities and bonds when the exchange rate is continuing to decline and there are also serious concerns about slowing GDP growth.